Gold Price Pulls Back After Record-Setting Run

GOLD PRICE NEWS – The gold price declined Sunday morning as investors shifted funds into equities on the hope that the stock market’s recent correction is over.  The price of gold fell $7.00 to $1,740 per ounce and now trades $80 lower than its record high of $1,815 per ounce, posted on August 11.  Weakness in the U.S. dollar, which fell against the euro and Australian dollar, failed to bolster gold this morning.  Oil climbed 0.3% to $85.66 per barrel while silver advanced $0.17 to $39.27 per ounce.

Gold prices have made a new all-time high for five consecutive weeks.  This marked the first time during the current bull market, which began in 2001, that the gold price posted more than three straight weeks of new all-time highs.   However, the price of gold may be hard pressed to stretch its record-setting streak to six given its significant decline at the end of last week.   The gold price rallied 5.0%for the week, and extended its year-to-date advance to 22.9%.

Silver climbed alongside the gold price last week, but considerably underperformed the yellow metal.  Gold’s sister precious metal rose 2.0% for the week, and is now higher by 26.4% year-to-date.  Precious metals equities were bolstered by the price of gold and silver with the Philadelphia Gold & Silver Index (XAU) gaining 5.4%.  Notable advancers included Barrick Gold (ABX), Goldcorp (GG), and Newmont Mining (NEM) – with gains of 8.1%, 7.8%, and 5.6%, respectively.  Gold mining stocks moved slightly lower early Monday morning on the back of lower gold prices.

Similarly to the gold price, the broader markets experienced significant volatility amid ongoing concerns over the U.S. economy and European sovereign debt crisis.  The Dow Jones Industrial Average (DJIA) underwent several hundred point swings each day, while the CBOE Volatility Index (VIX) reached 48.0, its highest level since March 2009, before sliding back to 36.36 on Friday.

With equities undergoing quite the rollercoaster ride, U.S. Treasuries continued to serve as one the primary safe havens alongside investments tied to the gold price.  The ten-year yield tumbled from 2.56% to as low as 2.09%, its lowest level since December 2008.  Real interest rates remain firmly in negative territory, a fact that continues to augur well for gold prices.

Bill Fleckenstein, a prominent investor and long-time bull on the gold price, summed up the bond market’s movements by writing on that “The perverse fact of the matter is, it doesn’t seem to matter how out of control your government is, if you have a printing press, your debt is sought after.  Look at Japan and look at us (the United States).  Some day that won’t be the case, but for now the explanation is that, in the short run, people just want to get their colored paper back, even if it is slowly going to disintegrate over time.”

Steven Harris, analyst with Macquarie Capital Markets, highlighted last week’s Federal Open Market Committee meeting as a positive catalyst for the broader equity markets, as well as for gold and investments tied to the gold price:

“We have called for the first Fed hike to be in 2H14 for some time now and earlier this week the FOMC

validated our call with statement that a low federal funds rate is likely to be warranted through “at least

mid 2013.”

Harris went to state that, “We recommend buying this pullback, with purchases focused on cyclicals and resource stocks. Our favourite asset class remains gold and gold equities.”